One interesting statistic is the divergence in performance by investor class: it seems that some limited partners (LPs, or investors) are much better than others at picking funds. University endowments have been particularly successful, while banks have performed dismally.
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Thursday, November 25, 2004
Kings of capital
The Economist has a nice survey on private equity funds (which include venture capital and traditional buyout funds). For those unfamiliar with the details, most funds have a "2 and 20" reward structure, taking a 2% management fee each year and 20% of profits. For example, a $1 billion fund, run by 5 partners, would split $20M per year in fees, and another $20M in "carry" assuming a 10% return on the fund. (Hedge funds work similarly.) No surprise that everyone in finance these days wants to be in private equity or at a hedge fund. Sadly for investors though, private equity and hedge funds often underperform indices like the SP500, even though they take on greater risk. Jon Moulton of Alchemy, a British private-equity firm, is puzzled: “A lot of people in the industry already make several million a year without having to perform. I can't understand why investors haven't put more pressure on fees.”
One interesting statistic is the divergence in performance by investor class: it seems that some limited partners (LPs, or investors) are much better than others at picking funds. University endowments have been particularly successful, while banks have performed dismally.
One interesting statistic is the divergence in performance by investor class: it seems that some limited partners (LPs, or investors) are much better than others at picking funds. University endowments have been particularly successful, while banks have performed dismally.
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